Ryanair is predicting an 'irrational' airline price war that could be great for customers

Budget airline tickets aren't exactly expensive right now thanks
to low oil prices, but Ryanair thinks the cost of flying could
fall even further.

Irish no-frills airline Ryanair
reported its full-year results this morning, which revealed a
12% jump in revenue to €5.65 billion (£4 billion, $6.16 billion)
and a 66% rise in profit after tax to €867 million (£613 million,
$946 million).

But it warned investors not to expect a similar rise next year,
due to competition from rivals on ticket prices.

Here's Ryanair (emphasis ours):

While our traffic growth this year will be strong, (up
10%), it would be foolish not to expect some irrational
pricing response from competitors who cannot compete
with our lowest costs and fares. Ryanair will remain
vigorously “load factor active/price passive”. Therefore,
even with the benefit of lower oil, aircraft and financing costs
we may suffer periods of fare/yield weakness especially during
the H2 winter season.

What that basically means is that Ryanair plans to focus on
filling its planes — measured by load factor — to reap benefits
from efficiency, rather than cutting ticket prices to attract
more customers.

But if rivals do just that, it could hurt Ryanair's yield —
a measure of revenue per customer, per mile flown — as it's
forced to either trim prices or sees customer numbers
fall.

If all this were to happen, it
would be good news for consumers, as airlines would be offering
cheaper seats in a bid to win business.

Ryanair, which celebrates its
30th birthday in July, has itself upped competition with its main
European rival, easyJet, by focusing on customer service,
something it was once notorious for being bad at. Ryanair has
made changes including allowing customers to select seats at
check-in and take an extra piece of hand luggage on board for
free.

The company praised its "Always
Getting Better" transformation plan for helping boost customer
numbers by 11% to 90.6 million in the year.This is what boosted revenue and profits,
along with cheap oil.

A drop in oil prices cut costs
by 5% last year, but this is a smaller benefit than at other
airlines. Ryanair
buys 90% of its fuel well in advance through "hedging" agreements
to guard against a jump in price. What this means is it agrees a
price to buy the fuel many months before the actual deal is done.
This protects the company from any sharp and unexpected price
jumps.

This practice will also pin
back growth next year as oil is hedged at $92 (£59) a barrel,
well above its current price of around $65 (£42) a barrel.

Aer Lingus battle

Ryanair also used its results
to attack the UK's Competition and Markets Authority (CMA). The
watchdog has ordered Ryanair to sell its 29.8% stake in rival
Irish airline Aer Lingus. The CMA argues the stake is
anti-competitive and also puts off potential bidders for Aer
Lingus.

The company added: "In
the meantime our approach to the IAG offer remains
unchanged. The Board of Ryanair will consider any offer
(should we receive one) from IAG on its merits, if or when it is
received." IAG and Aer Lingus are negotiating.